May 28, 2008

The project included opening a convenience store that had been closed for 1yr. We designed the store, organized the construction, and ordered the equipment. We set up vendor contracts, merchandised the store and set up all the accounting systems.

“Without Dirks and Associates, this project would have been impossible to complete” Dean lead us through the whole process from the start to finish” We had a significant need to be open by May 1 due to Alaska’s seasonality and opened on May 2nd.”

May 21, 2008

Foodservice labor is the second highest cost in an operation, which makes labor management the cornerstone to profits.

Convenience store retailers should keep a separate Profit and Loss statement to manage their foodservice business and labor has to be managed hour by hour, not at the end of the week when it is too late to make adjustments.

Since labor control has to become part of your culture, there should be a “no excuse” mentality when it comes to managing it. For example, never allow overtime and have lower paid employees working holidays that required employees to be paid time and a half.

Some other concepts c-store retailers should follow include:

— Focus on labor dollars, not hours, you don’t take hours to the bank.
— Labor should be scheduled in 15 minute increments.
— Training hours should be minimized; employees should be trained by the managers.

Customer count labor management is the only way to control costs and maximize speed of service.

I’ve found three tools to be extremely valuable for managing labor costs. They are a labor schedule module, a labor report that lists actual vs. budgeted costs, and a labor distribution report. Here’s a brief explanation of how each of these help.

Labor Schedule Module
1. Labor is budgeted on a three-week rolling sales average, so that day with higher volume gets more labor.
2. Each day has to balance before moving on to the next when scheduling.
3. After the schedule is completed, the total dollars are compared to budget number. If the manager has used too much labor he or she can readjust it before the week starts.
4. The module is populated with customers in 15 minute increments, forcing managers to allocate labor correctly to maximize both labor and speed of service.
5. Sales per labor hour should be monitored hourly, to make adjustments at that point in time.

Actual vs. Budgeted Labor Report
1. This report is generated the day payroll is calculated and shows the actual labor dollars used vs. what the store’s budget was.
2. Managers are called the day this report comes out for an action plan to reduce labor the following week.
3. Labor variance is kept year-to-date, so that if a manager has a bad week, he or she can catch up the next week.

Labor Distribution Report1. This is calculated the day payroll comes out.
2. Calculates overtime used and wage rates.
3. Should a manager commit the mortal sin of overtime, it allows you to see if he or she used the cheapest employee.
4. Calculates average wage rates and shift differentials.
5. Calculates sales per labor hour and how it was distributed.
6. Managers can make labor budgets but if labor is not allocated correctly, customers will stand in line.

Successful restaurateurs manage labor, not write schedules. To manage labor the culture has to focus just as intensely as portion control or any other basic concept.

SALES- HOW YOU MEASURE UPInside customer counts- no pay at the pump
Best in class capture rate (customers who will purchase food) = 25%
Best in class average transaction (it will be different for various concepts
Multiply 25% of inside customer counts by the average transaction.
Example, 600 inside counts x .25% capture rate x $6.50 (average transaction) = $975 a day

IDEAL COST OF SALES MODELNumber of items sold / week multiplied by price
Recipes are built, linked to raw goods
Increase in raw costs change the recipe cost
Items sold per wk multiplied by the recipe cost
The total item costs then divided by total retail income.
The model tells you ideal food costs based on sales mix.
Food costs -reviewed on variance to the ideal cost of sales.

FOOD COST CONTROL
Record all waste
Inventory at COST once a week.
Inventory paper products associated with food items
Food cost info to supervisors the day after inventory
Call managers and request an action plan
Food cost management is a minute by minute, day by day process.

LABOR CONTROLSMake labor control part of your culture.
Time series vs. customer count
Think dollars, not hours
Daily and weekly labor a function of sales
Sales per labor hour
Make managers accountable for effective reviews and raises
YTD labor is one of criteria for bonus

LABOR CONTROLSPart time labor. Recruit, recruit, recruit. Needed to reduce labor
Shift leaders, who will send people home when it is slow
Hours of operations in food service
Training is critical, but don’t allocate training dollars
If the manager is allowed training hours they will use them , they should be training
Move equipment to reduce labor.

SUMMARY
There are no silver bullets in food service.
You should not be in the food service business unless you are expensing all costs to a separate Profit and Loss statement
Success requires hourly and daily attention to food and labor controls.
You need to react to poor sales, excessive labor or high food costs the next day, not on the 10th of the next month when the P&L is produced

THE REWARD
Profits can be $5k-$10k a month .
It the concept is a good fit, it will create a destination location.
One stop shop is attractive to consumers.
Food service builds frequency.
Inside sales will lift because of ancillary purchases.

GUT CHECKSThe companies’ ability to operate food service.
Willingness to pay market rates for food service managers.
Staffing stores- a big problem, do you want to add to the problem?
The owner’s patience to loose money in the beginning.

SITE REVIEW
Locations often fail due to poor site reviews.
Traditional restaurants spend $10,000 to $20,000 on site reviews.
Visibility, data shows that the “if you build it they will come” theory is not always true.
Poor signage destroys food service

SITE REVIEW
Adequate parking, making money at food service can’t be a trade off for hurting inside sales
Parking at the pumps due to poor parking
Walk-up business, office and factory workers can offset parking
Drive thrus are critical for some concepts.

THREATS
If the concept is a branded, realize that QSR companies can build as close to as they choose.
Bridging strategy.
Future developments that may change traffic flows, new malls, and possible future QSR plans.
Available real-estate for traditional QSR restaurants to build.

SALES FORECASTINGCustomer counts, capture rate data and average check used to forecast sales.
If branded companies use sales numbers complete your own due diligence.
High sales “hide sins”, low sales make it hard to manage COGS and labor.

CALCULATING COST OF GOODS
Don’t use % information given to you.
Develop recipe for each item, include everything, condiments, napkins, straws.
Cost each recipe.
Set the retail price of each item.
Calculate estimated sales mix.
Calculate ideal cost of goods, + 3%.

LABOR FORECAST EXAMPLE
Two people needed to staff a deli.
They can produce 4k a wk in sales or 6k a wk in sales.
The fixed scheduled dollars are $1,200.
4k a week in sales = 30% labor costs.
6k a week in sales= 20% labor costs.

FINANCIAL ANALYSISDevelop a profit and loss forecast based on previous information.
Enter all expenses, labor at all levels (senior management), utilities, water, credit card fees, etc.
Consider the opportunity cost of the space. Analyze the cost of a beer cave and a lift in beer sales for example.

THE END OF THE DAY
Calculate internal rate of return.
Determine whether the internal rate of return meets the owners hurdle rate.
If the internal rate of return doesn’t meet the owner’s threshold for risk it may be better to pass.

POINT OF SALE80% of QSR customers are frustrated by the speed of service.
Kiosks will increase speed of service with accuracy.
70% of QSR customers stated that rude employees are the #1 reason for not returning.
Kiosks will eliminate this issue

POINT OF SALE80% of QSR customers stated that inaccurate orders will cause them not to return.
Kiosks will increase order accuracy.
70% of QSR customers will not come back due to drive through accuracy.
Drive thru touch screens will increase order accuracy.

KIOSK SALES GROWTH1 out of 3 associates will try to suggestive sell.
“Would you like to add a combo meal for just 99 cents more? ”30% more success than“Would you like a combo meal?”
Kiosks scripted for suggestive selling to advance.

TECHNOLOGY POINT OF SALEE-Menu boards can be updated in real time, enabling managers to highlight specials or make changes
E-Menus that a will allow guests to place their orders, play a variety of video games and pay their tabs at the table.

RISING FOOD COSTS
Food prices rose 7.6 percent in 2007, the biggest price increase in 27 years.
Corn price is $5.56 vs. $3.34 last year
Wheat price is $10.38 vs. $5.80 last year
Flour increased (93%), cheese (25%) and eggs (35%) in 2007.
Food cost increases are a long term problem.
Australian drought and Ethanol

RISING LABOR COSTS
Federal minimum wage will increase from $5.15 to $7.25 an hour over the next two years.
Current US average minimum wage is $6.27
Washington-7.93 minimum wage
Oregon- 7.80 minimum wage

TECHNOLOGY ELIMINATE STAFFING
3,200 of McDonald’s units have automated beverage systems linked to the cash register. Drops the cup, fills it with ice, soda and conveys it to the drive-through.
Wendy’s in 2007 rolled out grills with flippers that cook a burger on both sides simultaneously.
McDonald’s is testing an automated french fry machine.

TECHNOLOGY ELIMINATE STAFFING
Automated grill- will transport food from an attached freezer to the grill.
U.of Wisconsin developed a robot that slaps the bun on a finished burger and will assemble three burgers per minute.
Self-cleaning fryers & broilers.

ENERGY COSTSRestaurants spend on average 3 to 5 percent of their total operating costs on energy costs.
QSR’s are building much smaller foot prints and engineering kitchens for efficiency.

SUMMARY
The QSR industry is under a great deal of pressure.
QSR’s have targeted the c-store market in terms of coffee, drinks and breakfast.
Our industry must strive for the same standards and efficiencies as QSRs to succeed.

May 13, 2008

Escalating food prices, rising labor costs, and higher energy costs are forcing operators to become better at food cost management. Shaving 2 percent off of $5 million is a $100,000 savings, which in many cases will get an operation in the black.

If the below best practices are followed at least 1 percent of food costs will be lowered.

Pricing:
– Analyze your pricing. Customers won’t notice a change from 89 cents to 99 cents.
– Review the sales mix of an item you are considering to raise. Items with a 25 percent sales mix will impact the bottom line more than an item with a 1 percent sales mix.

Ideal cost of sales model:
– Calculate the ideal cost of sales for each of your foodservice operations. In simple terms, the model tells you ideal food costs based on sales mix.
– Food costs should be evaluated by the variance from the ideal cost of sales.
– Based on the sales mix, one operation could be under performing, another over performing.
– The model allows recipes to be built, which are linked, to raw goods. When the cost of raw products changes this data, calculate the new cost of the recipe.

Administrative:
– Cost accounting is the standard in the restaurant industry, but the way retailers do food cost accounting is not accurate. If a store is using retail accounting and a customer double cups a coffee cup, the foodservice operation is $1.25 short. The standard in the restaurant industry is to use cost accounting which simply means SALES MINUS COST OF GOODS SOLD. Cost of goods sold divided by sales gets you your food cost. Basically, most convenience store people operate restaurants like convenience stores, which is a primary problem.
– Monthly P&L’s are a must, with all expenses associated with the food service unit allocated, including credit card fees on food items, utilities, depreciation, uniforms, and other costs.

Ordering:
– Utilize appropriate and accurate Par levels.
– Product should always be properly organized for ease of ordering and inventory taking.
– Accurately inventory on the day of the order.
– Take into account all potential changes, including seasonality, special events etc.
– Only the manager should order.

Receiving:
– Check product temperatures at time of delivery. This will extend the shelf life of produce.
– Check the invoices off.
– Manage inventory utilizing FIFO (First In First Out) method.
– Ensure product quality upon delivery, for example, check the color/quality of lettuce, etc.
– Date the product at the time of delivery.
– Make sure all credits are received and processed.

Inventory Procedures:
– Only managers should complete weekly inventories.
– Take into consideration items that may have been removed from a case. If there are three blocks of cheese left in a 6-block case, make sure you inventory three blocks. Some people will only inventory full cases.
– Transfers should be properly documented and accounted for.
– Inventory products wall to wall rather than skipping around.

Controls:
– Monitor your average check and hourly sales, and react to unexplained trends.
– Have all items been rung up correctly?
– Employee meal policies should be in place, known by all, and tightly monitored.
– Control the number of sauce packets given in the drive thru.
– Cashiers should log in so performance can be monitored. Track deletions, voids, and shortages.
– Check invoices for correct pricing.

Food cost control requires all of these procedures and policies to be followed hour by hour and day by day. Traditional QSRs (quick service restaurants) are obsessive about food costs and in most cases, controlling these costs predicate the success or failure of the restaurant.

Volatile fuel margins, increasing labor costs and the threat of federal taxation on cigarettes leaves owners looking for new income streams. While food service is profitable for many companies, many others have failed. Traditional quick service restaurant (QSR) companies spend a great deal of money on site selection but still experience 4 percent to 10 percent closure rates, with some concepts experiencing failure rates as high as 20 percent.

In many cases, due diligence is a major factor for failure in the c-store foodservice industry. Here are just of few of the things professional consulting firms analyze when researching locations for QSR companies. They should be part of your own due diligence:

The Physical Location

— Is the location highly visible? Data shows that the “if you build it, they will come” theory does not always apply to c-store foodservice.

— Are there signage restrictions? Poor signage destroys foodservice.

— Is there adequate parking? Making money at foodservice can’t be a tradeoff for hurting inside sales by lack of parking.